The European Commission has decided to accept, in view of the specific circumstances of the case, the proposal of UK telecoms regulator Ofcom to oblige telecoms operator BT to provide 'virtual' access to its optical fibre infrastructure to alternative operators. Ofcom’s proposal will allow product differentiation and innovation similar to that possible through physical local loop unbundling. Ofcom’s plans will maintain competition on UK broadband markets following the roll-out of next generation access (NGA) networks by allowing alternative operators to offer competitive broadband services on these networks. However, the Commission underlined that this should only be a transitional measure and that full fibre unbundling should be imposed as soon as technically and economically possible.

Digital Agenda Commissioner Neelie Kroes said: "In this specific instance, virtual unbundling seems the best option to safeguard competition and enable consumers to benefit from a wider range of services provided over next generation fibre infrastructure. However, this interim solution is not a long term alternative to physical fibre unbundling, which should be imposed as soon as possible."

The Commission decision concerns UK markets for wholesale local access (i.e. access to the local loop) and wholesale broadband access. Wholesale broadband access (or bitstream access) is, together with access to the unbundled local loop, a way for alternative operators to enter the retail market.

On 23 March 2010, Ofcom informed the Commission of its draft plans to include within the wholesale local access market, a virtual unbundled local access product (VULA). Ofcom explained that VULA is an electronic means to provide virtual, bitstream-type access that is similar to local physical access (i.e. physical unbundling of fibre or copper local loops and access to ducts). According to Ofcom, VULA enables interconnection at local level and supports many services. It also grants alternative operatorsaccess to end users and enables companies, to a large extent, to control the access connection and Customer Premises Equipment.

The Commission has largely endorsed Ofcom's plans. It agrees with Ofcom that, in the specific circumstances of the case (also taking into account BT's functional separation), VULA has many features which indicate that, in terms of functionality, it is similar to physical local loop unbundling (LLU). In particular, VULA should allow product differentiation and innovation similar to LLU and thus give access-seekers a sufficient degree of control, including quality of service, over the local connection to the end-user. However, it does not give alternative operators the same freedom to offer retail products as they could through a fully unbundled fibre line.

The Commission emphasises that telecoms regulators should, as a matter of principle, mandate unbundled access to the fibre loop irrespective of the network architecture used by the dominant operator. The Commission stressed that a VULA remedy should be just a transitory measure and should be replaced by fibre unbundling as soon as it is technically and economically feasible. Only fibre unbundling will give alternative operators full and direct control over the product they offer to end-users.

The Commission further pointed out that, contrary to Ofcom's proposal, prices for VULA should be cost-oriented. According to the EU regulatory framework, such prices can be adjusted to take into account investment risk, according to the specific contractual setting, in order to drive both competition and investment in NGAs.

Background

This is the first time that a national telecoms regulator in the EU has proposed a practical solution to ensure access to point to multi-point fibre infrastructures, including VDSL (Very High Speed Digital Subscriber Line) and G-PON (Gigabit Passive Optical Network). These technologies are used in many Member States where fibre networks are deployed. A single fibre line is shared between several end users and cannot be easy unbundled at the point where alternative operators can access the infrastructure. So far, unbundling of such fibre infrastructures has been considered very costly and difficult to implement from a technical point of view.

The "Article 7 procedure" under the EU telecoms rules requires regulators to notify the Commission of their draft regulatory plans and so allows regulators to achieve effective competition in their national telecoms markets, while ensuring consistency across the EU (see MEMO/10/226).